01:26 PM EDT, 08/19/2024 (MT Newswires) -- Dell Technologies ( DELL ) is positioned for both revenue and earnings upside in the fiscal second quarter and the full year amid a more favorable setup tied to artificial intelligence server momentum, Morgan Stanley said Monday.

For the second quarter, Morgan Stanley lifted its revenue outlook by 2.2% to $24.66 billion, which is above management's guidance in the $23.5 billion to $24.5 billion range and 2.3% above consensus. Its adjusted EPS forecast was raised to $1.71 from $1.69, toward the high-end of Dell's guidance range and above the $1.68 consensus.

Artificial intelligence server momentum and stronger personal computer pricing drove Morgan Stanley's July-quarter estimates higher, the note showed. Its checks indicated that Dell shipped 12,000 HGX AI servers in the quarter driving $3.3 billion of AI server revenue, compared with Morgan Stanley's prior assumption of 8,000 shipments at $2.3 billion in revenue.

The brokerage raised its infrastructure solution group estimate by 5.5%. ISG's operating margin is seen expanding 170 basis points quarter over quarter to 9.7%, while stronger PC pricing is expected to more than offset weaker shipments, according to Morgan Stanley.

On a year-over-year basis, ISG's operating margins -- a metric that "spooked investors last quarter" -- is expected to contract by 300 basis points, the brokerage wrote. However, this is purely a function of a mix shift towards AI servers and lower year-over-year storage margins, as AI server margins are predicted to advance year over year, according to the report.

The brokerage sees a path to nearly $14 billion in AI server revenue this year at about 50,000 AI server shipments as Dell's business gains momentum amid strong demand and repeat purchases, the brokerage's checks with component vendors and assembly partners indicated. The brokerage's second-half AI server shipment forecast is 20% below what supply chain checks have signaled, "leaving further room for upside" from Morgan Stanley's $11.7 billion forecast.

The brokerage expects Dell to raise its full-year revenue guidance by at least $1 billion while generating nearly $12 billion of AI server revenue, up from Morgan Stanley's earlier forecast of $11 billion. The bank's full-year revenue target was lowered to $97.55 billion from $97.68 billion and its non-GAAP EPS outlook was reduced to $7.90 from $8, though both remain above the consensus views.

The brokerage reiterated an overweight rating on the stock but lowered its price target to $142 from $155 on a reduced fiscal 2026 earnings per share estimate of $10.12, compared with its previous forecast of $10.34. Morgan Stanley's 2026 model is 11% above the consensus view.

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